India’s Chip Policy May Be Inclined Towards Fabless Companies

It makes more sense to incentivise and attract fabless companies as these generally do not depend much on critical infrastructure, and also employ larger number of people

The government of India has reached mature stages of finalising the semiconductor policy it wants to launch and implement in India. Sources close to the government of India told Electronics For You Network that the focus of the policy would be around attracting fabless heavyweights to set shop in India.For info a fabless company designs and owns intellectual property rights (IPR) of solutions but outsources the manufacturing to third party vendors. Qualcomm, Broadcom, AMD and Nvidia are the best examples of fabless chip companies whereas TSMC is the best example of a contract manufacturer that serves them. Fabless companies hold the rights to choose organizations they intend to sell these chips and solutions to.

“There are strong chances that the government will roll out the finalized policy within three months from now. The policy, at the moment, looks inclined towards attracting fabless companies,” the gentleman said.

He added, “Fabless companies are more like Apple who get their products manufactured by third parties but hold the right to choose where to sell the same.”

It makes more sense to incentivise and attract fabless companies as these generally do not depend much on critical infrastructure, and also employ a larger number of people.

“Building a fab might not be the right strategy now as it requires investment in the range of US$ 30 to 40 billion! Considering you have US$ 40 billion ready to invest in a fab, why not invest parts of these in 5000 different fabless semiconductor companies,” Parag Naik, CEO, Saankhya Labs, had shared with Electronics For You earlier.

He added, “With this approach, we will start to see companies building chipsets for products like laptops, set-top boxes, mobiles, TVs and whatnot. Once a critical mass of companies originating in India start doing so, then you go and build a fab in India.”

Starting with a fab, according to him, is like trying to reach for a solution from the wrong end. Even if we invest in a fab, where are the companies that will use that fab?

ATMPs also on radar

There is also news of ATMPs being set up in India doing the rounds of media houses. The mixed approach of having a fabless ecosystem and setting up ATMP units might work in favour of the country as both these verticals of semiconductor manufacturing require less unds and infrastructure but are able to generate more jobs.

“The ideal situation will be where we start by attracting fabless companies followed by ATMP units. Once successful, the focus can then be turned towards high tech and specialty labs,” said the gentleman.

It is worth noting here that setting up a semiconductor fab that is not technologically latest would require investment to the tune of $15 to 20 billion. Investing this huge amount in fabless companies, on the other hand, might be able to bring out more benefits. “Fabless design companies can create 10x more jobs in comparison to what a semiconductor fab can do. That too with lesser investments in comparison to a fab! If you look at the larger side, fabless companies create more jobs in the complete ecosystem,” Naik had told us earlier.

“The population in India is one of the largest and that is our plus point. These fabless companies know electronics sell like hot cakes in the country and they would want to grab a piece of that cake,” said the gentleman.

Ajay Prakash Sawhney, secretary, ministry of electronics and information technology, at an industry event in May, had noted that the government of India has already received EoIs from global players and it would come up with concrete schemes for semiconductor manufacturing in India in six months. The policy in talks here might offer more than Rs 1000 crore in incentives to fabless companies.

It is worth mentioning here that the country already has a PLI in existence that promises to reward such ATM units with incentives based on production. Dubbed  Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), the scheme was launched in 2020, and promises financial incentive of 25 per cent on capital expenditure for the identified list of electronic goods, i.e., electronic components, semiconductor/ display fabrication units, ATMP units, specialized sub-assemblies and capital goods for manufacture of aforesaid goods.

Fabless semiconductor firms represented 32.8 per cent of the total market in 2020, a record for the segment, according to new data from IC Insights. According to IESA, semiconductor consumption in India was around US$21 billion in 2019.